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Thoughts on the Abitibi Investment


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Were Abitibi in CCA, debtholders would essentially need to do a debt to pref share swap to refinance the company. In practical terms only the better assets would be put into new coys & refinanced. The poorer assets would be discontinued. Pension shortfalls would be dealt with through some kind of pragmatic compromise arrangement. At 15.5%, we can reasonably assume that this new debt is secured against the better assets.   


Each new coy would likely be regional, have a very strong BS, & would probably include seperate subs in 2-3 LOB`s. Providing it was done quickly the coy`s would also be profitable, as all existing Abitibi contracts could now be met through fewer plants - generating higher thoughputs & minimizing fixed costs per ton. 1st stage rationalization. But to get a piece of these coys you would have to be an existing debt holder, & essentially agree to a `pre-pack`.


Where Abitibi leads others will immediately follow, & subs in the industry`s various LOB`s will get traded (same as hockey). Fewer, bigger, & the most efficient plants in specialized sectors - owned by coy`s that become proxy`s for that segment. Pure, & profitable, plays that facilitate investment. 2nd stage rationalization.


It looks like the long awaited industry rationalization has begun, & that FFH is essentially positioning itself. Hopefully, we`re more or less correct.





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